Crown Earnings: Volumes Remain Pressured, but Beverage and Transit Margins Look Resilient

Narrow-moat-rated Crown Holdings CCK reported solid second-quarter results that came with few surprises. Net sales fell over 11% year over year as Crown continues to navigate a challenging operating environment, with inflationary pressures and economic uncertainty weighing on can volumes. Revenue was impacted by the pass through of lower aluminum costs as prices retreated significantly from a year ago. Despite near-term headwinds, we continue to believe Crown is well positioned to benefit from persistent long-term demand for aluminum cans. As such, we maintain our $97 fair value estimate.

The Americas beverage segment reported mixed results in the quarter, with revenue decreasing 6% year over year but segment operating margins expanding to over 16%. Can volumes in the Americas were up 1.5% despite declines in most other regions, largely due to steady demand and heightened promotional activity. We expect continued strength in the Americas segment through the remainder of the year, largely due to resilient customer demand. The European beverage segment saw similar results as a double-digit decline in revenue was met with a 460-basis-point increase in the segment’s operating margin, which largely benefited from inflationary pass-through provisions from 2022. We expect the European segment to see sequential improvements in the second half of the year, but core consumer strength in the region remains a concern.

Crown’s transit packaging business reported an almost 14% decline in revenue year over year on softening demand, but operating margins expanded an impressive 400 basis points to almost 15% as cost initiatives continued to materialize. Management slightly lowered its full-year EPS guidance to $6.20 (midpoint) from $6.30 (midpoint) previously due to lower expected equity earnings. While we expect a mid-single-digit decline in revenue for 2023, management’s updated EPS guidance seems achievable to us given the resiliency of margins across the business.